Harker v. Eastport Holdings, LLC (In re GYPC, Inc.)
| Decision Date | 19 February 2020 |
| Docket Number | Case No. 17-31030,Adv. No. 19-3054 |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
| Parties | In re: GYPC, INC., Debtor DONALD F. HARKER, III, CHAPTER 7 TRUSTEE, Plaintiff v. EASTPORT HOLDINGS, LLC, Defendant |
Decision Denying Defendant Eastport Holdings, LLC's Motion for Abstention (doc. 13) This matter is before the court on Defendant Eastport Holdings, LLC's Motion for Abstention (doc. 13) (the "Motion"). The court has considered the Motion, Plaintiff GYPC's Objection to the Motion (doc. 23), and Eastport's Reply (doc. 26). For the reasons stated in this decision, the court will enter an order denying the Motion.
GYPC, Inc. ("GYPC") filed its petition initiating the underlying bankruptcy case under Chapter 11 of the Bankruptcy Code on March 30, 2017. The case was converted to Chapter 7 on August 16, 2019. On its schedules, GYPC lists a Preferred Membership Interest ("PMI") in Eastport Holdings, LLC ("Eastport") with an unknown value on Schedule A/B. (Estate doc. 19).
The PMI arises out of a July 12, 2016 Asset Purchase and Sale Agreement (the "APA").1 The parties to the APA are General Yellow Pages Consultants, Inc. ("GYPC"), as seller; Christopher Cummings and Eric Webb, as principals; Mindstream Media, LLC ("Mindstream"), as the buyer; and Eastport as the parent company of Mindstream. Through the APA, GYPC sold substantially all of its assets to Mindstream. The APA provides in section 6.1(c) that Webb and Cummings are required to indemnify Eastport and Mindstream from, among other things, any Excluded Liabilities2 which Eastport or Mindstream pays. The APA and the PMI are at the heart of this adversary proceeding and the Motion.
On February 16, 2018 Eastport filed a complaint in the Circuit Court of Shelby County, Tennessee against Webb and Cummings alleging that they breached the APA by not indemnifying Eastport for Excluded Liabilities it paid (the "Tennessee Action"). Eastport further alleges that the principals were "self-dealing" in their management of GYPC's bankruptcy case. Eastport did not name GYPC as a party to the Tennessee Action.
On July 5, 2018, prior to the conversion of this case to Chapter 7, GYPC filed an application seeking to employ Valuation Research Corporation to appraise the value of thePMI in Eastport. GYPC Estate, doc. 119. The court granted that application on August 10, 2o18. Estate doc. 126.
On April 30, 2019 GYPC filed its complaint initiating this adversary proceeding, alleging that Eastport violated the automatic stay by attempting to exercise control over estate property through the sending of correspondence to GYPC as well as through its filing of the Tennessee Action. GYPC is requesting damages for Eastport's alleged stay violations and, in addition, a determination of the value of GYPC's PMI in Eastport (doc. 1).
In response to GYPC's complaint, Eastport filed the Motion asking this court to abstain from hearing this proceeding and instead allow for completion of the Tennessee Action involving contract issues and the PMI. GYPC objected with a Memorandum in Opposition arguing that this court is the appropriate forum to determine the alleged stay violations as well as the PMI's value.
Eastport asserts that the Tennessee Action Doc. 13 at 2. GYPC argues that the PMI is property of its bankruptcy estate and that if its stay violation allegations are established, Eastport's right to a setoff against the PMI may be extinguished. In sum, GYPC argues that the stay violation issues are threshold issues which this court should address before the value of the PMI can be determined.
This court has jurisdiction pursuant to 28 U.S.C. § 1334 and the standing order of reference in the Southern District of Ohio, Amended General Order 05-02. The court may determine the abstention motion as a contested matter under Federal Rule of Bankruptcy Procedure 9014.
Even when a bankruptcy court has subject matter jurisdiction over a proceeding, the court may determine it is inappropriate to hear the proceeding and abstain from hearing the proceeding "in the interest of justice, or in the interest of comity with State courts or respect for State law[.]" 28 U.S.C. § 1334(c)(1). Additionally, a bankruptcy court may abstain in both core and non-core proceedings if the court deems it appropriate. Underwood v. United Student Aid Funds, Inc. (In re Underwood), 299 B.R. 471, 476 (Bankr. S.D. Ohio 2003). However, "[a]bstention from the exercise of federal jurisdiction is the exception, not the rule." Nationwide Roofing & Sheet Metal, Inc. v. Cincinnati Ins. Co. (In re Nationwide Roofing and Sheet Metal, Inc.), 130 B.R. 768, 778 (Bankr. S.D. Ohio 1991) (citations omitted). The doctrine of abstention is an "extraordinary and narrow" exception to the duty of a bankruptcy court to adjudicate a controversy that is properly before it. Id. Abdication of the obligation to decide cases can be justified under the permissive abstention doctrine only in the "exceptional circumstances where the order to the parties to repair to the State Court would clearly serve an important countervailing interest." McDaniel v. ABN Amro Mortgage Group, 364 B.R. 644, 649 (Bankr. S.D. Ohio 2007) (quoting In re Tremaine, 188 B.R. 380, 384 (Bankr. S.D. Ohio 1995)).
In order to determine whether it is appropriate to abstain, courts consider a number of nonexclusive factors. These factors include: (1) the effect or lack of effect on the efficient administration of the estate if a court abstains; (2) the extent to which state law issues predominate over bankruptcy issues; (3) the difficulty or unsettled nature of the applicable state law; (4) the presence of a related proceeding commenced in state court or other non-bankruptcy court; (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334; (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (7) the substance rather than form of an asserted core proceeding; (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court; (9) the burden of this court's docket; (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties; (11) the existence of a right to a jury trial; (12) the presence in the proceeding of non-debtor parties; and (13) any unusual or other significant factors.
Antioch Co. Litig. Tr. v. Hardman, 438 B.R. 598, 609-10 (Bankr. S.D. Ohio 2010); Nationwide, 130 B.R. at 780 (similar); Tremaine, 188 B.R. at 385 (similar). "This is a multi-factor balancing test,not a rule in which every element must be satisfied" and "not all factors need to weigh in favor of permissive abstention in order for it to be appropriate." MD Acquisition LLC v. Myers (In re Martin Designs, Inc.), Adv. No. 09-6037, 2009 WL 2707215, at *7 (Bankr. N.D. Ohio Aug. 26, 2009). Further, "[t]he relevance and importance of each of these factors will vary with the particular circumstances of each case and no one factor is necessarily determinative." McDaniel, 364 B.R. at 650 (quoting In re Chicago, Milwaukee, St. Paul & Pacific R.R., 6 F.3d 1184, 1189 (7th Cir. 1993)).
To make this determination, the court will analyze the relevant factors.
With regard to the efficient administration of the estate, based on the facts and circumstances, it is likely that abstention would have a negative effect on the administration of the estate by delaying administration and placing an unnecessary burden on the Chapter 7 trustee. All of the parties in this litigation are subject to the jurisdiction of this court. Further, all of the parties in this litigation are also involved in other adversary proceedings pending in this court. For instance, this court just determined Webb and Cummings' motion to dismiss a third-party complaint filed against them by Mindstream in the adversary proceeding captioned GYPC, Inc. v. Mindstream Media, LLC, which involved interpretation of the APA and many of the same facts as is involved in this proceeding. Adv. No. 19-3032, docs. 34 and 35. The court is familiar with the issues between these parties and the terms of the APA and it would not benefit the efficient administration of the bankruptcy estate if the court were to abstain from this litigation. See In re Bavelis, 453 B.R. 832, 870 (Bankr. S.D. Ohio 2011). In Bavelis, the court factored into its decision not to transfer the case that it was quite familiar with the issues and parties involved and transferring would not provide for the efficient administration of the estate. Id.
Further, if the court were to abstain, the creditors would be negatively affected as well. In Johnston, the court determined that the administration of the estate would not be affected in part because the main estate case had no assets available for distribution and there was no possibility that if the court did not abstain that assets would become available. Johnston v.City of Middletown (In re Johnston), 484 B.R. 698, 715 (Bankr. S.D. Ohio 2012). In this case, assets are available and abstaining would only inefficiently lengthen the time that assets will be able to be distributed to creditors.
Additionally, the Chapter 7 trustee should not have to litigate these issues...
To continue reading
Request your trial